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These Underdogs Are No Dogs

Like the smart hedge fund operators, these CAPS investors bet against a stock -- and won big!

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest folks in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, we've also got leading analysts who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market. However, we're going to focus on the stocks these top members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see which others they think will succeed.

Not every short sale goes as planned, making shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. So don't use this as a list of stocks to sell or buy -- just the launching pad for further research.

Underdogs still wag their tailsNow that Apple(Nasdaq: AAPL) has revealed the iPad 2 and Motorola Mobility's Xoom is winning rave reviews, investors are expecting future developments in tablet computing, smartphones, and other computing platforms to help lift glassmaker Corning. CAPS member richmondnole says it's the industry leader for such technologies:

This stock will outperform the S&P 500 because they are the leader in fiber optic cable and gorilla glass which will be going into every cell phone/iPad/iTouch. Unlimited potential here.

Having originally benefited from the boom in flat-screen TVs, Corning spiraled down as the recession took hold and there was little need to upgrade to the latest innovations in TV viewing, such as 3-D and Internet capabilities, but the big uptick in smartphones helped filled the gap.

Is tablet computing just a fad? Despite the gee-whiz factor from the latest product introductions, they remain relatively pricey, underpowered, entertainment gadgets. Computer makers like Hewlett-Packard(NYSE: HPQ) felt the shockwave from consumers buying iPads instead of computers, but anecdotal evidence is increasing that maybe they're not all they're cracked up to be. A few tech reviewers note they rarely use their iPads anymore.

Even so, with a glut of tablets due on the market this year, Corning should be kept busy enough. Add the glassmaker to your free, personalized watchlist and see if there's a clear picture for growth still before it.

A well-dressed opportunityDespite otherwise encouraging signs of a rebounding economy, a weak business software sector creates challenges for companies selling into the market. After a string of earnings reports from companies including JDA Software(Nasdaq: JDAS) and Amdocs(NYSE: DOX) confirmed the softness, there's been just one real standout: Ebix.

Despite being a low-profile company, Ebix is the premier exchange business operator, with fingers in markets like life insurance and annuities, employee benefits, and property and casualty insurance. Yet it's also using a risky growth-by-acquisition strategy, making it difficult to get a real handle on its abilities.

I am impressed with the consistency and aggressiveness being displayed at EBIX. Their reasonable use of cash/stock to roll up the international components of their business seems to strike the right balance for a growth company that is trying to capture a significant market place. Their ability to maintain reasonable pricing/margin structures in the midst of the process also seems prudently aggressive.

Let us know on the Ebix CAPS page whether you think it's offering investors an even risk-reward exchange.

All aboard!Accessories maker Mad Catz Interactive is getting a halo effect from being chosen by Microsoft to develop a co-branded wireless headset for the Xbox 360. Shares of the gadget maker soared after it announced the exclusive agreement. Although video game sales were down in January, last month saw a series of publishers post better-than-expected earnings, giving hope that the bottom has been hit and a rebound is on the way.

MCZ may sell products that are "expensive" but the initial cost is more than offset by the long duration of exhilarating entertainment it's games and accessories provide...Thanks to advances in technology video games are more entertaining than ever. Many video and computer games now have Internet play where you can complete objectives with and/or against human players from across the globe, making challenges more dynamic and entertaining...Not to mention the exponential improvement in computer graphics over the past decade..

Add the gadget maker to the Fool's free portfolio tracker and keep tabs on whether it's still game on.

There's no need to fear ...Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. Start your own research on these stocks on Motley Fool CAPS where your opinion can still save the day. While there, you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.

Fool contributorRich Dupreyowns shares of Motorola Mobility but does not have a financial position in any of the stocks mentioned in this article. You can seehis holdingshere. The Motley Fool has a stress-freedisclosure policy.

Author

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.